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Beta and MRP

How do you tackle a problem like this:
The asset beta for a company is 1.10. Division 1 had a 22% return this year; Division 2 had a 11% return. The asset beta of
industries like Division 1 is 2.0, and the asset beta of industries like Division 2 is 0.5. If the expected market risk premium is 9.2% and the risk-free rate of return is 5%, What division actually performed better? (There are no taxes).

Solution Preview

Please see the attached file.

Please note the formula to determine the required rate of return.

Required rate of return = risk free rate + beta(market risk premium)

First, we need to compute the required rate of return for the ...

Solution Summary

This solution is comprised of a detailed explanation to answer what division actually performed better.